Benefit of working longer? (Nah)

[atmsmshr]

Looking back, estimating the financial benefit if I had worked for the past 18 months instead of retiring.

{(Actual Portfolio increase over 18 months)+(Additional 401k savings)+(Actual retirement expenditures)} x 4 percent rule of thumb + pension balance increase.

The net financial benefit came out to less than $18/day. Before taxes. A small fraction of my planned allowable retirement income.

Since I had just completed 35 good years of paying into Social Security, and just maxed out on retiree medical pension benefit at age 58 – working longer would not improve those two entitlements.

Net health benefit of retirement – priceless.

What is / was your breakeven analysis?

 

[stepford]

I used a cost benefit analysis like that to justify working until 55 (a mistake, in retrospect). In my case my Megacorp announced (years in advance) that they would be freezing pensions the year I turned 55. This made every day I spent at work up to then worth a whole lot more than $18, but significantly less afterwards.

 

[RunningBum]

It would be interesting to ask people two questions:

1) Would you work another year and a half for $18/day?

2) Would you work another year and a half for $6500/year?

Did you answer differently? Or did you realize these are the same thing?

It's a good exercise, but I don't think one should make it look deceptively small. Most people measure their expenses as yearly or monthly, not daily.

No idea what my number was. I felt I had enough to retire with the lifestyle I wanted, with a buffer. I also knew I wasn't going to significantly increase my net worth by staying on. I may have calculated how much it would increase. I don't remember, and I don't care to figure it out now. I have no regrets at all, that much I know.

 

[Aerides]

A lot of people live on $18 a day, it's not nothing.

If 6500 was the difference between, say, a healthy travel budget, or a budget-travel-budget, yes. I would have done the extra 1.5.

If I had estimated, for example, my all in was $80k per year, I would not retire if firecalc said I only got to 95% if I reduced it to 73.5k.

I didn't retire to pinch pennies, but to enjoy myself. Incidentally, $6500 is about the cost of my deductible in my health insurance. I include the potential that either DH or I might hit that number most years. More often we won't, but I already know it only takes a little soap on the shower floor to result in knee surgery that almost comes up to that amount.

 

[Dtail]

Couldn't find meaningful work after volunteering for a package, so my situation resolved itself for retirement without any breakeven points.

 

[atmsmshr]

I used a cost benefit analysis like that to justify working until 55 (a mistake, in retrospect). In my case my Megacorp announced (years in advance) that they would be freezing pensions the year I turned 55. This made every day I spent at work up to then worth a whole lot more than $18, but significantly less afterwards.

Exactly where I was - up to age 58 there was decent financial benefit, but after that age the net benefit dropped down to the equivalent of two Grande Lattes and a tip each day.

 

[atmsmshr]

A lot of people live on $18 a day, it's not nothing.

If 6500 was the difference between, say, a healthy travel budget, or a budget-travel-budget, yes. I would have done the extra 1.5.

You are right Aerides.

Pulling the retirement trigger is really is a balance for a particular person/couple on their net assets and retirement expectations/expenses.

 

[Andre1969]

I had started toying with the idea of retiring around this time last year, just before COVID started messing things up. SS isn't a very big factor at this point. I figure this past year boosted my benefit by about $550/yr, assuming I start collecting at 62, which is in 2032.

Investible assets are up about $275K, so just going with a 4% withdrawal, that's an extra $11,000 per year, or $30/day. Throw on the SS, round up a bit ,and that's $32/day. At this point in my life, I'd say it was worth it, putting in the extra year. But, I have a feeling that years from now if I run the calculation, I'll discover that I could have retired then, after all.

Another quick and dirty way of looking at it, I guess, is that this extra year of working was worth about $70,000 to me. Between my take home pay, 401k contributions + company match, and the savings on health insurance versus having to pay for it all myself, it probably came out to around that. 4% of $70K, divided by 365 comes out to $7.67 per day. Throw on SS, and that's about $9/day.

 

[EnricoPallazzo]

Here's an analysis of the impact of dong One More Year through history.

https://earlyretirementnow.com/2021/01/13/one-more-year-swr-series-part-42/

 

[EnricoPallazzo]

[...] but after that age the net benefit dropped down to the equivalent of two Grande Lattes and a tip each day.

 

[Perryinva]

I did the exact same running income differences the last few years while I worked, with similar result. I also had made the conscious decision to wait until at least 60 in order to get full employer medical to gap to Medicare. Every year working past age 60 reduced the premium as well as increased pension. (To age 65) As you said, zero incentive, SS wise once you already have 35 max years. The addition to the bottom line and lowered withdrawals (or increased income), seem more substantial to me. Say, with a SWAG of a 150k a year income (about what you would have to been at, minimum to have 35 max SS years), you are adding at least $80k to the bottom line, (if you are an active FIRE kind of person) plus pension increase of say 3500/ year. so using the 4% rule, thats $6700 more per year FOR LIFE. So while that’s $18/day, it translates to an increase of $600/mo and a larger nest egg. You have to delay filing SS for, what, 2 years to see that same increase? For many, not that insignificant. In my case, once I hit 60, I was still on the steep side of increased pension thanks to a substantial promotion/raises, so the plan was to go to 62 when the curve flattened out. As it happened an ERP was offered at 61, that wiped out any advantage to pass & to wait until 62 as planned, and would required waiting until 64 to make any significant difference. 3 additional years of freedom for that amount was well well worth it.

I retired with many that were 68-70 that had delayed to get the rumored (for 3 years) ERP package and not one I spoke with since then think, NOW, that it was worth the wait. It is amazingly consistent how ones mindset while working, justifies OMY over and over again, but once retired, can NOT understand what they were thinking to have stayed all those extra years. For me personally, retirement with the ERP @ 61 was a perfect balance.

Now I track my SS increases, since 2021 is the first year I can actually collect (@63) and would not have to pay it back. I’m at $2500/mo, looking to justify waiting to until $3500/mo, just because I like the sound of it, and it seems like a decent amount that if I die first, DW with her pension and the $500k life insurance policy plus, would be more than fine to live on.

 

[Perryinva]

Excellent posts EnricoPallazzo. One of my favorite characters, too! The only thing that the ERN article didn’t cover, is that portfolio failure is less important if fixed income increases (SS + pensions), especially if COLA, so if delaying OMY drives those up a significant amount, they carry more weight. Living comfortably on just $3k/mo SS is a lot more challenging , compared to $3k/mo SS + $4k/mo pension. Plenty of people would be comfortable with a far, far smaller nest egg (meaning less years worked to build it up) with $7k/mo regular income.

 

[jollystomper]

There are several reasons I extended my working years to age 60 in 2018, beyond when the numbers said I could retire:

- I wanted more than an comfortable retirement, without any need to choose to work again. So I built a buffer of additional cash and investments with a savings rate that averaged over 40% for the last 2 years of work.

- My pension frozen in terms of income but not years of service. The yearly increase still averaged several thousand a year until age 60, when it leveled off so that the pension difference between age 60 and 65 was only around $3000 a year.

- One of the "benefits" of Megacorp freezing my pension was that they paid extra into my 401K for 10 years, the last year being 2017. So it was worth maximizing that.

- It allowed to me to meet the 35 years of maximum SS taxes to get the maximum SS benefit.

- Looking at what folks were paying for ACA premiums and the rate they were growing, and knowing we would not be eligible for subsides, I continued to build up monies for that expense. It was forecast to be over $20K a year for us before Medicare. Fortunately it will turn out to be much less than that.

- I had a job that I liked and was able to establish a "glide path" for the final 2 years (which I have another thread on) that lowered by time, effort, and responsibility while still contributing to Megacorp and my management not wanting me to retire. So there was little stress in extending my work during that time.

 

[atmsmshr]

I did the exact same running income differences the last few years while I worked, with similar result. I also had made the conscious decision to wait until at least 60 in order to get full employer medical to gap to Medicare. Every year working past age 60 reduced the premium as well as increased pension. (To age 65) As you said, zero incentive, SS wise once you already have 35 max years. The addition to the bottom line and lowered withdrawals (or increased income), seem more substantial to me. Say, with a SWAG of a 150k a year income (about what you would have to been at, minimum to have 35 max SS years), you are adding at least $80k to the bottom line, (if you are an active FIRE kind of person) plus pension increase of say 3500/ year. so using the 4% rule, thats $6700 more per year FOR LIFE. So while that’s $18/day, it translates to an increase of $600/mo and a larger nest egg. You have to delay filing SS for, what, 2 years to see that same increase? For many, not that insignificant. In my case, once I hit 60, I was still on the steep side of increased pension thanks to a substantial promotion/raises, so the plan was to go to 62 when the curve flattened out. As it happened an ERP was offered at 61, that wiped out any advantage to pass & to wait until 62 as planned, and would required waiting until 64 to make any significant difference. 3 additional years of freedom for that amount was well well worth it.

I retired with many that were 68-70 that had delayed to get the rumored (for 3 years) ERP package and not one I spoke with since then think, NOW, that it was worth the wait. It is amazingly consistent how ones mindset while working, justifies OMY over and over again, but once retired, can NOT understand what they were thinking to have stayed all those extra years. For me personally, retirement with the ERP @ 61 was a perfect balance.

Now I track my SS increases, since 2021 is the first year I can actually collect (@63) and would not have to pay it back. I’m at $2500/mo, looking to justify waiting to until $3500/mo, just because I like the sound of it, and it seems like a decent amount that if I die first, DW with her pension and the $500k life insurance policy plus, would be more than fine to live on.

Good analysis. I wonder how many people really perform and understand their personal cost-benefit based on their unique circumstances? How many know their key break-even points in age and savings? Certainly not the majority of the USA population, but probably a respectable portion that are on this forum (is my personal scientific but wild ass guess).

If I had only known to skip Starbucks coffee at an earlier age, coulda/woulda/shoulda beat Elon Musk's retirement portfolio.

 

[stepford]

- One of the "benefits" of Megacorp freezing my pension was that they paid extra into my 401K for 10 years, the last year being 2017. So it was worth maximizing that.

That sounds a lot like my Megacorp: Froze pensions at the end of 2015 but offered a bribe of an additional 9% of salary added to 401K for the next couple of years for those who stayed. The extra few 10s of $K this worked out to didn't seem worth it to me (especially after 2 OMYs), but almost all of my colleagues decided to stay and collect.

 

[YakGrl]

I believe you also need to calculate one less year of withdrawals from assets, one less year to need to fund retirement, and potential growth of assets in market for the additional time working.

 

[dunkelblau]

Pension and retiree medical don't exist for me, and Social Security gains would be minimal, so I took a simpler approach, my current W2 topline net of taxes grows savings just 2% per OMY. I've stayed on mainly for health reasons, I missed the boat on RE because the FI part allowed me to take control over the important parts of work life for the past decade, so for me work in 2020 was exactly the same as the previous years.

Even though my work involves sitting in front of a computer screen, it's helped me avoid overindulging in food and alcohol so I've been able to keep my BMI below 20. It also gives me welcome distraction from watching Mr Market too closely which helps my mental health. I've also noticed that the relatively rare busy day flies by, and I sleep especially well that night, so I think there may be cognitive benefits too.

 

[Souschef]

I had to keep w*rking to continue medical coverage for my late wife, who was brain injured. After she passed away, I had nothing better to do, plus I could max out my 401K with the catch up provisions.
I remarried, and just waited until early January when the profit sharing was posted to my 401K than bailed.

 

[mystang52]

I didn't analyze any per diem increase. My approach was much simpler: how much did I need, both rationally as well as emotionally, to feel comfortable quitting and living the retirement lifestyle I wanted.

 

[Perryinva]

Well, honestly you have to be a OMY kind of person/situation. If you hate your job, no OMY. If you have no other incentives, no OMY. I REALY enjoyed my career. Ideally, if they had put off the ERP until Covid hit, I would have been fine with that too. I’ve been divorced twice, starting basically over each time. I never discount ANY possibility. I wanted my situation to be that should basically most of the things that could possibly happen, within reason, happen, I would still be fine & dandy. Cuts to SS? No problem. Reduced pension? Covered. C19 plus retirement has strained home-life. I don’t see another divorce in the making, really, but there are times.....

 

[street]

Well, for me working longer would have saved more money, pension would have grown, 401K would of got bigger, SS I would have paid in more so big SS check.

So, the benefit of working longer would of been a better financially but for me I wouldn't have benefited my life style or my happiness.

I can say, I most likely did better retiring early financially from putting my entire pension (lump Sum) in the stock market from day one. With 150% growth in just 4 years I may have done better ER from all the money it made me. If I was working the pension had set numbers of pay out and the market had nothing to do what the pension has going to pay out on retirement day.

So getting that defined pension working for me was a factor for me to take the money and get it invested in the markets. I made more money from retiring early then working these last 4 years with markets the way they have been.

 

[bada bing]

Adding years worked at the end of a career is a very powerful financial tool, if you need it. Especially if you're on a FIRE as opposed to SIRE track to RE. Adding to savings balances while the market hopefully grows the principal, potentially delaying SS and perhaps pension while burning up a year of lifespan and getting closer to medicare age all add up. In my case, I was offered a position to stay with the acquiring company in a buyout at a similar, career high compensation. If I had stayed working, best guess is I could have added ~$2M to my portfolio with average market returns and savings with an additional 5 years worked (5 year bonus cycle offer). In my case, time>>$$ and I couldn't see staying until age 67. I'm very happy to be done while still fully functional, but it isn't as if there weren't incentives to stay working. If I had different legacy concerns I could see my decision being different.

 

[athena53]

I didn't analyze any per diem increase. My approach was much simpler: how much did I need, both rationally as well as emotionally, to feel comfortable quitting and living the retirement lifestyle I wanted.

That was my process. DH and I were stashing away over $100K/year when I was working. That includes 401(k) contributions, most of DH's SS, my annual bonus, plus my employer's 12% match on my 6% contributions to the 401(k). We lived in a LCOL area, very modestly except for our travel budget. I retired at 61, so I passed up a large amount of income and additional savings but I can honestly say right now, 7 years later, that I didn't need it.

I had two small non-COLA pensions, both from terminated plans, so no benefit to working longer. I later calculated that if I'd worked till 65, my employers and I would have added another $180K in SS contributions and that would have increased my monthly benefit by $50.

I can live without that.